I'll Share Some Alpha: No, [INSERT TOKEN] is not Beta on ETH Denis Vuckovac, very early Ventures

[Music] perfect hello thank you I guess you can hear me well cryptic title but also catchy title a bit attention seeking I hope you excuse that hope I won't fool you again the title I'll share some Alpha no insert random token ticker is not better on E yeah my name is Dennis wotz um apparently I like to stare on my phone um there's three pictures of that me doing that because we're in Serbia it's always free things like free kisses and later maybe free shots of rakia maybe more let's see I'm originally from the region I was born in uh former Yugoslavia I'm a German National lived most of my life in Germany and now living in Switzerland I have a background in machine learning and statistics I um moved to Switzerland to actually do the the PHD back in 2014 and then actually we started um setting up the fund so I'm like one of three founders and Partners at very early Ventures yes very early Ventures is an early stage crypto fund based out of Switzerland um mostly Zurich were three very technical people like two of us have a computer science degree we all met at the university the other is also fairly technical doing token design work um we were at I don't know maker CEO outlier Ventures before and then like two years ago we set up the fund we have institutional investors but also like um crypto natives which is um quite nice because they help us yeah stay grounded and uh with deal flow as people like to say in the VC space and we're generally investing in web free infrastructure uh across the whole Tech stack we do private investments in like companies that build things maybe they launch a token maybe not so we do both equity and token Investments but we also just um purchase tokens on the market like any other uh retail user could well and that's part of the motivation of uh today's talk before jumping into these Greek letters Alpha and beta um let's check um Alpha first like everyone wants Alpha but what is actually Alpha for that I asked Chad GPT um what's the answer Alpha is the magic ingredient in in investing that tells you how much an investment beats or legs behind the market a positive Alpha means your investment is outperforming making you look like a financial genius while a negative Alpha suggests it's underperforming signaling a need to rethink your strategy in essence Alpha is your portfolio's way of saying I've got a little something extra all right it's been quite a long paragraph Alpha is quite a lot but essentially it's two things it's on the one hand it's outperformance so being like better than the market but actually there's some more capture than that it's also like being better than the market independent of the market so like it doesn't really matter whether everything went up or down you're beating things and it's not like just pure leverage because that we would not consider Alpha okay from alpha as I said here follows beta what is beta in essence Alpha and beta both come from well Financial engineering 21st century research um most specifically the capital asset pricing model the cap M I don't really know who's behind that or whether they received the Nobel price or like one of those um fake Nobel prizes uh in economics but they might have uh Alpha as I mentioned is basically how much you're beating the market like independent uh of the market better on the other hand is like how much you're moving up or down with market and how much more sensitive or elastic you are so let's say something has a beta of two that basically means if the market goes up 1% or let's say 10% in a day because it's crypto and it's much more volatile you're going up 20% and if something goes down 10% you're going down 20% okay usually you do that and you compare that with um like some kind of Market portfolio like the whole Market in crypto we often like to think of something being better on Eve or back in the day like better on bitcoin Eve actually was often considered being better on bitcoin how do you get Alp and beta in the end you can get them from a very simple linear regression you can estimate the alpha being let's say um more or less just the coefficient of a linear regression and the beta being like in this case the coefficient in front of the returns of e why is beta relevant well consider or let's imagine you're a portfolio manager and you have a limited set of capital and and you want exposure to Eve but maybe you also want exposure to some other assets so in that case okay you could just have like 100% in Eve but uh you don't have any exposure to salana or Cosmos or whatever else in the other case um you might just go uh to 80% Eve and 20% salana Which means okay uh that's not great because now you have only 80% exposure to to Eve but you want 100 % exposure instead what you could do you could just have 50% um in a commonly in something that you consider better on uh Eve uh in the other hand you could just have that full exposure to Eve um that full exposure to the L2 system which is often commonly referred to as a better play on Eve um and instead of holding Eve you're holding arbitrum optimism so what okay what is something that nowadays is commonly being repeated or believed essentially it's two things one thing is that lsts like liquid staking tokens are behaving like better on Eve and the other belief is that arbitrum optimism um the L2 tokens are behaving as uh better on Eve is that true is it not let's have a look this is a um analysis of the beta estimates on a 90-day rolling basis so we're looking at the past 90 days we're looking at these beta coefficients and we're looking at the top five tokens and Below also like some other tokens that we're interested in as I mentioned arbitrum optimism that down here you see a c efficient of 0.94 0.91 so that's not really a beta that's bigger than one because you want one that's bigger than one if you really want better on Eve up there you see ens you see do you do see actually Lio so Li Lio currently does have a beta of 1.28 okay that's interesting that's like one of the fees which seems to be slightly confirmed the other not so much the problem if you look at this is that your beta coefficients are actually varying quite a m quite a lot so then it not just really stable 1.28 or 1.

3 they're actually ranging from 0.5 to 1.8 eight in the case of ens in the case of Lio we've seen periods where the beta was around 0.6 we've seen periods where the better was 1.8 this now would be just like a visualization a graph of these 90-day Runing average of Lio arbitrum optimism down there you can see currently arbitrum optimism we have a better below one so it's not really moving more than e Lio on the underhead does move slightly stronger this now is a few other coins ens I mentioned is currently the one with the strongest beta the strongest sensitivity relative to Eve moving stronger up moving stronger down CEO interestingly as well was recently even a stronger um beta play on Eve but has recovered or or Fallen quite a bit maybe CEO because of its most recent um transition to becoming an L2 but then you see maker maker the PowerHouse being considered as something really stable um has a beta of around 0.

8 so it moves much less and indeed it's um much less volatile so these are um the better estimates I mentioned before there's not just beta there's also Alpha so let's look into the alpha as well and arbitrum optimism lier looks quite bad the alpha is actually negative so there's no real Alpha in holding these tokens and now you can think of okay why is that is there maybe too much Supply are people like constantly selling maybe that's a reason but maybe there's really just no fundamental tie that makes Lio or arbitrum or optimism optim optimism like really a better play that moves more or less um than eeve interestingly again there were periods where we had stronger or more positive Alpha but nowadays really um Lio arbitrum optimism don't look that great and here the other three cases that we did find quite interestings CEO again negative alpha maker once again quite interesting both positive Alpha and um a quite stable uh 0.8 better so something that's that's really if you don't want to be a Dean if you want something with crypto exposure that is quite stable maker does seem from that portfolio construction perspective um to be quite a good bet all right so to wrap up final conclusion there's nothing really that is consistent better on E sometimes it is sometimes it's not um but as I mentioned before why should it be like really um most of the tokens don't have any value ACR that is really fundamentally tied um to ethereum and also if you think about like the ETF approval and demand coming from ETF buyers why should that cause um light or arbitrum or any other token to go up hand in hand with E that do change over time and if you want to have such an investment philosophy where you do um better based investing you do really need to observe your better and make sure you don't have a beta or maybe even Alpha DEC if you want e and you want leverage just get leverage don't go too hard leverage can also be like 1.5x and keep looking for Alpha because there's always cool people building cool fundamental stuff where yeah you can also invest and make money yeah that's it do we have any questions we have some time yep perfect hi um maybe I'm misguided a little bit but uh to to your second point that there there's no fundamental reason why some tokens should behave like ether um isn't it kind of a fundamental reason that if some let's say uh mem coin is deployed on ether you need to buy eth to then buy into this mem coin or this is maybe outside of this Alpha and beta uh talk you know what I mean um yeah I think I understand what you're asking I mean that sorry to interrupt that is basically the whole uh kind of of idea why people talk about this is better this is e better because e assets basically so um I don't think it's enough of a demand driver let's say people investing in a meme coin on Eve that just want to buy yes whatever that's a very good point the nft point I'm totally with you and um I think many nfts are actually I didn't do the analysis that's something uh I could do but as you can tell like nfts are a bit harder to analyze you look maybe at floor prices whatever I would say yes um nfts are better better place but I'm telling you for what reason the reason is that nfts are still traded against e so they're quoted and traded against e whereas many of the other tokens they're just like consistently um even the amm if you look at all the pools like the stable coin pools usdc usdt die whatever have become much stronger and also we're not really trading against Bitcoins anymore things are not quoted in satoshis and that's why something like Litecoin or Doge that maybe was um better on bitcoin because you would trade against Bitcoin was but now is not anymore and because of that I'd say Yes nfts um the Blue Chips Crypt punks might still be okay yeah hi uh interesting presentation uh I was just wondering about uh the graphs that you showed what for Alpha ad is uh is there some tool that uses this or is this something you built privately no no tool I did it myself you just basically um get the price data you get uh daily returns and um well yeah then you need to do on a rolling basis the the the estimation of these coefficients okay I'm just wondering uh where do you get the prices where do you which tool did you use for this um you could either use the coino API or um Yahoo finance has a good I mean this was all done in Python okay um there's a y Finance uh Library where you can easily get the Tok or put into in the token tickers and uh then get the data from Yahoo finance okay can C GPT build this for me maybe there's a good chance I guess yeah seems doable yeah okay that's it there's like uh there's a good chance the results of this presentation might make it into like a blog post and then there's somewhat of a chance from there that they might make it into like a public type of dashboard where people could play around with but um yeah not fully certain any more questions yeah too a question but how often do you actually do asset reallocation based on your analysis because I I mean we never so that there's a whole industry tradire industry that does like portfolio Construction rebalancing on such basis like trying to Target a certain beta trying to track something and then they speak of tracking errors all these types of things and I think crypto is too early of an industry to do that so we need more of the fun fundamental type of asset allocation so never but it's good to be aware if you're like your overall portfolio has maybe a bet of 1.3 or something and then you expect e might drop 10% and you might drop 13 or maybe even more so for risk management we keep track of these numbers just to be aware thanks is there anyone else who would like to ask something any more questions comments if not that's it thank you very much one more thank you thanks